1. Let's use the Euler equation two ways. First, to find out the optimal consump-tion path, taking the interest rate as given (Chapter 9 of GLS) and then to find outthe equilibrium interest rate that wil Choose sidebar display for saving and investment,taking the consumption path as given (Chapter 11 of GLS). Both times, the utilityfunction will be the same:Uln(c)+0.9ln(+1)So the future counts 90% as much as the present. In Part 1, income each periodis 100, and the interest rate is 20%. In Part 2, consumption in each period is 100-inother words, income each period is 100, but income isn't storable (it's "manna"), soyou have to consume it or lose it. Answer the following questions.Part 1: What is optimal consumption each period? In period t of this two-period world, will this person be borrowing or saving or neither?⚫ Part 2: What is the equilibrium interest rate between these two periods? If theequilbrium interest rate were lower than that level, would that create a surplusor a shortage, in Econ 101 terms?

Personal preferences are another aspect that influences personal savings. Some people may prefer to…

Answered: 1. Let's use the Euler equation two…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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5) Mrs. Gizem has a salary of 10000 TL per month. Assuming that her autonomous (zero-income level) consumption is 600 TL and her MPC is 0.72, find how much she spends in one month and how much she saves? b) If Mrs. Gizem receives a salary rise of 2000 which increases her monthly salary to 12 000 per month; how much increase we may expect in her consumption and her saving?
Consider a two-period consumption saving model and let f1 and f2 denote the first and secondperiod consumption, respectively. Assume that the interest rate at which the consumer may lend or borrowis 10%. Suppose that a consumer’s utility function is x (f1> f2) = f1 + 20√f2= The consumer first periodincome is L1 = $100 and the present value of her income stream is $330=(a) What is the optimal consumption stream (consumption bundle) of this consumer?(b) Is this consumer borrower or lender? How much does she borrow or lend?(c) What is the effect of a reduction of the interest rate to 5% on the consumer’s optimal first-periodsaving? (Make sure to take into account the effect of the decline in the interest rate on the present value ofthe consumer’s income stream.)
Figure 7.2 45° c,S Y=200 In Figure 7.2, if income is $200, then: O consumption is also $200. saving is also $200. consumption is zero. the intercept of the consumption function is negative.
12. Given this diagram of Consumption and Savings functions, What will be the level of savings at an income level of 60? 6. Given this diagram of Consumption and Savings functions, What will be the level of savings at an income level of 20? 07. Given this diagram of Consumption and Savings functions, What is the level of total desired consumption at income level of 80? 8. Given this diagram of Consumption and Savings functions, What is the level of "induced consumption" at income level of 40
Consider the intertemporal consumption problem of Mr Cronus between two periods, say this yearand next year. His utility function takes the form U (c1; c2) = pc1 +0:97pc2, where c1 and c2 arehis consumption this and next year respectively. It can be shown (and you do not have to) thatthis utility function satises diminishing marginal rate of substitution.His yearly income is stable at 100 unit (let say a unit is ten-thousand). He faces di¤erent interestrates between borrowing and saving. Specically, the saving interest rate is 0:02, whereas theborrowing interest rate is 0:04.(a) Describe the budget set facing Mr Cronus.(b) Is Mr Cronus a borrower? Explain your answer.(c) Is Mr Cronus a saver? Explain your answer.
1. According to the Bureau of Economic Analysis, during therecession of 2007–2009, household saving as a fraction of dis-posable personal income increased from a low of just over1 percent in the first quarter of 2008 to 5 percent in the secondquarter of 2009. All else equal, what impact would this changein saving have on the MPC, MPS, and multiplier? How wouldthis change affect equilibrium output when planned invest-ment changes? 2. Assume in a simple economy that the level of saving is –500 whenaggregate output equals zero and that the marginal propensity tosave is 0.2. Derive the saving function and the consumption func-tion, and draw a graph showing these functions. At what level ofaggregate output does the consumption curve cross the 45° line?Explain your answer and show this on the graph.
QUESTION 1An individual lives for two periods and decides how much to consume in each period.- In the first period his consumption equals C1 and his income Y1 = 200- In the second period his consumption equals C2 and his income Y2 = 100He can save or borrow money in the first period to finance his consumption in the second period.The interest rate he gets in case he saves or has to pay in case he borrows money equals 7%.Determine the budget constraint of this individual. C2 = −0.935·C1 +314C2 =−1.07·C1 +314C2 =−0.8·C1 +314C2 =−1.08·C1 +314 QUESTION 2The total production of a good y is determined by the production function y = 3L2/3K1/3, where L is labour input and K capital input.The reward (factor prices) for labour and capital are, l = 27 en r = 2, respectively.The producer needs to produce 9000 units of good y.How much units of labour will he hire if he wants to miminize his total costs? 1587,4839,953000515,23 QUESTION 3A good is traded on a perfectly competitive…
9. Given this diagram of Consumption and Savings functions, What will be the level of savings at an income level of 80? 10. Given this diagram of Consumption and Savings functions, What is the level of total desired consumption at income level of 60? 11. Given this diagram of Consumption and Savings functions, What is the level of "induced consumption" at income level of 80?
1) In the IS equation why wasnt G in the calculations. 2)Suppose that with all exogenous variables, including T and M at their original values, households become less confident about the future and reduce their autonomous level of consumption from 200 to 150. Solve for the new values of e, Y and NX. With the help of graphs, explain very carefully the mechanisms by which a new equilibrium is reached. 3)Suppose that with all exogenous variables at their original values, the autonomous part of money demand increases to 70. Solve for the new values of e, Y and NX. With the help of graphs, explain very carefully the mechanisms by which a new equilibrium is reached.
If Carol's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to O save is 3/5. O consume is 1/2. O consume is 3/5. O consume is 2/5.
If Nathan received an $800 bonus and his MPC is 0.75, his consumption rises by $. and his saving rises by $___ O 600; 200 O 800; 250 O 400; 250 O 825; 125
Let's use the Euler equation two ways. First, to find out the optimal consumption path, taking the interest rate as a given and then to find out the equilibrium interest rate that will eliminate demand for saving and investment, taking the consumption path as a given. Both times, the utility function will be the same. U = In(c) + 0.9 ln(c₁+₁) t+1 So the future counts 90% as much as the present. In Part 1, income each period is 100, and the interest rate is 20%. In Part 2, consumption in each period is 100 -- in other words, income each period is 100, but income isn't storable (it's “manna”), so you have to consume it or lose it. Answer the following questions: Part A: What is optimal consumption each period? In period t of this two-period world, will this person be borrowing or saving or neither? Part B: What is the equilibrium interest rate between these two periods? If the equilibrium interest rate were lower than that level, would that create a surplus or a shortage, in Econ 101…

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